Economy Watch: Economy Benefiting from Home Sales

What's good in residential real estate is usually good for commercial real estate (eventually), and the best thing that can happen on the residential side these days are higher sales that don't feed another bubble.

What’s good in residential real estate is usually good for commercial real estate (eventually), and the best thing that can happen on the residential side these days are higher sales that don’t feed another bubble. As people move into their own homes, neighborhoods stabilize, retail does better, and eventually even office and industrial markets benefit. The National Association of Realtors released its monthly report on existing residential sales on Wednesday, and while one month isn’t enough to call a trend, the March numbers were stronger than expected. People bought houses, and that’s at least one positive economic indicator to balance some of the negative ones lately.

Total existing-home sales of every kind—single-family homes, townhomes, condominiums and co-ops—increased 6.1 percent to an annualized rate of 5.19 million units in March, compared with from 4.89 million in February. That’s the highest annualized rate since September 2013 (when it was also 5.19 million), NAR said, and sales have increased year-over-year for six months in a row. In fact, sales were 10.4 percent above a year ago in March, the highest annual increase since August 2013, which was 10.7 percent. What’s driving the demand spurt?

Buyer optimism might be a factor. Last week the University of Michigan reported that consumer optimism rebounded in early April to its second highest level since 2007. More importantly, optimism has recorded a higher average during the last five months than any time since May 2004. The major exception has been in the expected size of future income gains, the university said. While expected income gains have improved over the recent recession lows, they’re still weak (and for good reason, since increased productivity hasn’t been remotely matched by increased pay for some years now).

The Realtors also reported another reason for optimism when it comes to the housing market: foreclosures and short sales totaled 10 percent of sales in March, down from 11 percent in February and 14 percent a year ago. Seven percent of March sales were foreclosures and 3 percent were short sales. The lower those numbers go, the better, since they drive prices down. Foreclosures sold for an average discount of 16 percent below market value in March (compared with 17 percent in February), while short sales were also discounted 16 percent (15 percent in February).